Questor share tip: Aggreko a questionable stock

It's the end of an era as chief executive Rupert Soames departs. Questor says
sell

Aggreko, the temporary power provider, said last week that it would return £200m to shareholders as profits fell by 8pc to £338m for 2013. The company said it was the right time to supplement the ordinary dividend and, subject to approval, shareholders would get 75p in respect of each existing ordinary share they hold on 27 May 2014.

“After nine consecutive years of growth, 2013 proved to be a challenging year. Despite this, Aggreko delivered a creditable performance and good progress on many fronts,” said chairman Ken Hanna.

The full-year dividend was also given a 10pc boost to 26.3p, which is ex-dividend on April 23 and payable on May 27.

Rupert Soames, chief executive, recently announced he was to leave the Glasgow-based engineering firm on April 24 and take up the same role at Serco Group.

Mr Soames has been leading the group for the past 11 years, during which the shares have risen from about 140p to £16.00 today. He will be replaced in the short term by the chief financial officer, Angus Cockburn.

A search for a permanent replacement has already begun. Mr Soames leaves the company after profits and the share price peaked in 2012, when it provided power for the London Olympics and reconstruction projects in Japan following the tsunami. The company had signalled profits would be lower.

Olympic hangover

The company is split into two divisions. The local business, which contributes 59pc of group revenue and 45pc of trading profit, provides short-term power at events such as the London Olympics and Glastonbury music festival.

The international power projects provide longer-term power to governments with inadequate infrastructure and armed forces on foreign operations; it contributes 41pc of revenue and 55pc of trading profits.

The local business reported trading profits down 7pc as lucrative London Olympics work was not repeated and the power projects division reported profits down 8pc as revenues from military projects and Japan declined.

Slower growth

With growth slowing in the local business and going backwards in power projects, the rating on the shares remains questionable.

Aggreko has been, and still is, an excellent company, but investors are being asked to pay 19.2 times forecast earnings for a company whose profits are currently in decline and spend on the fleet doesn’t cover depreciation.

The company has boosted dividend payments at the full-year stage, but currently that rating remains too high given the numbers we have here. The return of capital also suggests there are fewer opportunities for growth, however, the shares are still on the rating of a high-growth company. Sell.